NCR Down 5.2% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for NCR Corporation (NCR - Free Report) . Shares have lost about 5.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is NCR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

NCR Q1 Results

NCR started 2018 on a strong note, reporting better-than-expected results for the first quarter. The company’s non-GAAP earnings from continuing operations of 56 cents per share surpassed the Zacks Consensus Estimate of 44 cents. The reported figure also came in ahead of management’s guided range of 41-47 cents. On a year-over-year basis, however, the tally remained flat.

Revenues

The company’s revenues of $1.52 billion outpaced the Zacks Consensus Estimate of $1.47 billion, as well as came in 2.6% higher year over year.

The company’s Software revenues, on a reported basis, were up 2% to $460 million. The upswing was primarily due to a 9% and 8% increase in Cloud and Professional Services, which was partially offset by an 18% and 1% decline in Software License and Software Maintenance revenues, respectively.

Services revenues climbed 8% to $601 million on a reported basis. This upswing primarily stemmed from the company’s “channel transformation” initiatives, which resulted in growth of hardware maintenance and implementation services.

Hardware revenues, however, slipped 3% year over year, on a reported basis, to $456 million. Segment revenues from ATM, SCO and IPS declined 7%, 24% and 100%, respectively, which negatively impacted the overall hardware revenues. The decline in ATM revenues was due to low backlog at the beginning of the first quarter.

However, revenues from POS ascended 19%, which slightly offset the decline of the other three segments. The rise in POS revenues was chiefly attributable to “store transformation trends”.

Margins

Non-GAAP gross profit for the quarter remained flat year over year at $431 million. Nevertheless, non-GAAP gross margin shrunk 80 basis points (bps) to 28.4% as benefits from productivity improvements in Services segment were more than offset by reduced software license revenues and lower Hardware margins.

Non-GAAP operating expenses during the quarter came in at $283 million, reflecting an increase from $273 million in the year-ago quarter, mainly due to increased sales investments as part of the company’s focus on expansion of its strategic offers.

Elevated expenses resulted in a decrease in income from operations, which on a non-GAAP basis, came in at $148 million, down from $158 million reported in the year-ago period. Also, operating margin contracted around 90 bps on a year-over-year basis to 9.8%.

Non-GAAP net income from continuing operations was $85 million compared with $87 million in the year-ago quarter.

Balance Sheet & Cash Flow

The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $348 million, down from $537 million reported in the previous quarter. Receivables were $1.34 billion.

However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $3.04 billion of long-term debt in its book compared with $2.94 billion reported in the previous quarter.

In the first quarter, the company used $24 million of cash for operational activities. For the quarter, free cash outflow was $99 million.

During the quarter, the company repurchased $165 million of its common stock.

Guidance

The company reaffirmed its outlook for 2018. NCR anticipates revenues to be flat to up 3%.

Non-GAAP earnings per share are expected in the range of $3.30-$3.45.

Per the U.S. tax reform, the company expects effective tax rate for 2018 to be 24%. The company expects free cash flow for 2018 to be around 90% of the non-GAAP net income.

Coming to the second-quarter outlook, NCR expects revenues in the range of -1% to +1%. The company expects non-GAAP earnings per share for the second-quarter quarter in the range of 60-65 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.